Collier Bankruptcy Case Update September-18-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
September 18, 2001
CASES IN THIS ISSUE
(scroll down to read the full summary)
- 2d Cir.
§ 362(d) Automatic stay was lifted.
In re Kaplan Breslaw Ash, LLC (Bankr. S.D.N.Y.)
28 U.S.C. § 157(d) Motion for withdrawal of reference granted where resolution of proceeding required substantial and material consideration of federal securities laws.
Bear, Stearns Sec.’s Corp. v. Gredd (S.D.N.Y.)
§ 106(a) Sovereign immunity did not bar trustee’s section 544 claims against IRS.
Liebersohn v. IRS (In re C.F. Foods, L.P.) (Bankr. E.D. Pa.)
§ 510(b) Subordination of merger claims was established.
Lernout & Hauspie Speech Prods. v. Baker (In re Lernout & Hauspie Speech Prods.) (Bankr. D. Del.)
§ 523(a)(1) Postpetition interest was nondischargeable.
In re Matunas (Bankr. D.N.J.)
§ 1327(a) Confirmed plan bound creditor.
Banks v. Sallie Mae Servicing Corp. (In re Banks) (Bankr. W.D. Va.)
§ 363(m) Second mortgagee’s appeal from order that authorized sale of collateral to first mortgagee deemed moot.
In re Searex Energy Servs. (E.D. La.)
§ 328(a) Fee applications were approved.
In re Am-Us Co. (Bankr. S.D. Ohio)
§ 523(a)(2)(A) Elements of nondischargeability were not established.
Yunger v. Woodby (In re Woodby) (Bankr. S.D. Ohio)
§ 523(a)(6) Malpractice claim was not excepted from discharge.
Matlock v. Numrich (In re Numrich) (Bankr. S.D. Ohio)
Rule 7056 Motion for summary judgment was denied.
Eagle-Picher Indus. v. Caradon Doors & Windows, Inc. (In re Eagle-Picher Indus.) (Bankr. S.D. Ohio)
§ 362(h) Award of compensatory damages was reversed.
Patton v. Shade (C.D. Ill.)
§ 510(c) Equitable subordination was not a proper cause of action.
Freeland v. IRS (N.D. Ind.)
Rule 7037 Failure to comply with pretrial order warranted dismissal of the proceeding.
McFarland v. Great Lakes Higher Educ. Guar. Corp. (In re McFarland) (Bankr. N.D. Ind.)
§ 546(c) Creditor’s failure to follow reclamation demand with adversary proceeding did not extinguish claim, but additional evidence was needed to determine value, if any, of reclamation right.
In re Hartz Foods, Inc. (Bankr. D. Minn.)
§ 362(a)(3) Creditors’ knowing retention of debtors’ property violated automatic stay.
In re Johnson (Bankr. D. Idaho)
§ 523(a)(2)(A) Motion for summary judgment denied where creditor failed to establish debtor’s knowingly false representation of material fact and reliance.
Massie v. Pate (In re Pate) (Bankr. D. Idaho)
28 U.S.C. § 1412 Venue transfer of tort litigation was not warranted.
Tig Ins. Co. v. Smolker, (In re Tig Ins. Co.) (Bankr. C.D. Cal.)
§ 350(b) B.A.P. affirmed reopening of debtor’s case; neither laches nor equitable estoppel barred reopening.
Watson v. Parker (In re Parker) (B.A.P. 10th Cir.)
§ 362(b)(4) Actions were not excepted from stay.
In re Dolen (Bankr. M.D. Fla.)
§ 507 District of Columbia’s sales tax lien had priority over lien held by IRS.
WPG, Inc. v. IRS (In re WPG, Inc.) (Bankr. D.C.)
28 U.S.C. § 158(a) Federal claims court lacked jurisdiction.
Allustiarte v. United States (Fed. Cir.)
Collier Bankruptcy Case Summaries
Automatic stay was lifted. Bankr. S.D.N.Y. The undersecured lender moved for relief from the automatic stay to permit it to complete the foreclosure of mortgages encumbering a warehouse owned by the chapter 11 debtor. The secured indebtedness to the lender was substantially in excess of the value of the warehouse, the debtor’s sole asset. Since the filing date, the debtor had not made any payments for adequate protection to the lender and failed to pay postpetition taxes. The debtor had few unsecured creditors other than insiders and had no significant income. The bankruptcy court granted the lender’s motion, holding that relief under section 362(d) was warranted. The debtor failed to show that an effective reorganization was possible or that the warehouse was necessary to an effective reorganization. The court further noted that the debtor filed the case for the sole purpose of blocking legitimate efforts by the lender to foreclose on the warehouse without undertaking any measures to satisfy its obligations (citing Collier on Bankruptcy, 15th Ed. Revised).In re Kaplan Breslaw Ash, LLC, 2001 Bankr. LEXIS 850, 264 B.R. 309 (Bankr. S.D.N.Y. June 20, 2001) (Gerber, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07
Motion for withdrawal of reference granted where resolution of proceeding required substantial and material consideration of federal securities laws. S.D.N.Y. The chapter 11 trustee filed an adversary proceeding to avoid more than $3.7 billion in allegedly fraudulent transfers made on behalf of the debtor, a hedge fund, to the fund’s prime broker. The trustee alleged that the fund’s manager engaged in a Ponzi scheme. Although the prime broker was not accused of participating in the scheme, the trustee sought to recover margin payments, short sale proceeds and the fund’s repayment of securities loaned to the fund by the prime broker, all pursuant to section 548(a)(1). The prime broker moved to withdraw the reference of the matter to the bankruptcy court pursuant to 28 U.S.C. section 157(d). The district court granted the prime broker’s motion for withdrawal of the reference because resolution of the adversary proceeding required 'substantial and material consideration' of federal securities laws and regulations (citing Collier on Bankruptcy 15th Ed. Revised).Bear, Stearns Sec.’s Corp. v. Gredd, 2001 U.S. Dist. LEXIS 10324, – B.R. – (S.D.N.Y. July 23, 2001) (Buchwald, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.04
Sovereign immunity did not bar trustee’s section 544 claims against IRS. Bankr. E.D. Pa. The chapter 7 trustee moved for summary judgment on his adversary complaint to recover alleged prepetition fraudulent transfers made by the debtor to the IRS. The trustee argued, among other things, that the IRS admitted all of the necessary elements to establish 'actual fraud' under the state’s (Pennsylvania) Uniform Fraudulent Transfer Act in its answer to the trustee’s amended complaint, that there were no genuine issues of material fact and that summary judgment should be granted in his favor. The IRS argued that application of the doctrine of sovereign immunity rendered it immune from the claims asserted by the trustee under section 544. The bankruptcy court held that the doctrine of sovereign immunity did not bar the trustee’s action against the IRS. The court based its decision on the unambiguous language of section 106, the legislative history of section 106, the specific inclusion of section 544 in section 106(a), the precedent for Congress providing a trustee with greater rights than those possessed by the unsecured creditor upon whom a section 544(b) claim is based and the policy reasons favoring recovery for the benefit of all creditors. The court also held, however, that an amended answer filed by the IRS presented genuine issues of material fact that precluded summary judgment in favor of the trustee (citing Collier on Bankruptcy 15th Ed. Revised).Liebersohn v. IRS (In re C.F. Foods, L.P.), 2001 Bankr. LEXIS 1003, 265 B.R. 71 (Bankr. E.D. Pa. August 3, 2001) (Carey, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.01
Subordination of merger claims was established. Bankr. D. Del. The chapter 11 affiliated debtors filed a complaint seeking a declaration that the shareholders’ claims against the subsidiary debtor were relegated to the status of the common stock of the parent debtor. Pursuant to a prepetition merger agreement, the shareholders received stock in the parent debtor in exchange for their stake in a company that merged with the debtors. The shareholders moved to dismiss the complaint, arguing that their merger claim against the subsidiary debtor should not be subordinated to the status of the parent debtor’s common stock. The bankruptcy court granted the motion to dismiss, holding that although the shareholders’ claim against the subsidiary debtor, arising from the purchase of parent debtor securities, was subordinated to general unsecured claimants of the subsidiary debtor, the shareholders’ claim was treated pari passu for distribution purposes with other equity security holders of the subsidiary debtor. The court rejected the debtors’ position that the claim against the subsidiary debtor should be subordinated to the level of the parent debtor’s stock because it would have effectively disallowed the claim in the subsidiary debtor’s case (citing Collier on Bankruptcy, 15th Ed. Revised).Lernout & Hauspie Speech Prods. v. Baker (In re Lernout & Hauspie Speech Prods.), 2001 Bankr. LEXIS 848, 264 B.R. 336 (Bankr. D. Del. June 14, 2001) (Wizmur, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:510.04
Postpetition interest was nondischargeable. Bankr. D.N.J. The IRS filed a motion asking the bankruptcy court to reconsider its decision that the IRS was precluded from seeking to collect taxes in addition to those set forth in a stipulated agreement between the IRS and the chapter 11 debtors. The debtors had agreed to pay the secured and unsecured priority tax claims after confirmation of their plan. The debtors later paid an amount that exceeded the agreed-upon stipulated figure, and the bankruptcy court determined that they were due a refund. On reconsideration, the IRS argued that the excess amount was more properly considered an overpayment, rather than a refund, so that it could be applied toward the postpetition, preconfirmation interest on the debt that was still outstanding. The bankruptcy court granted the IRS’s motion, holding that the claim for interest on priority taxes, which accrued after the petition was filed but before confirmation, was not allowable as a claim against the estate but remained a nondischargeable obligation of the individual debtors. The excess money paid by the debtor was recharacterized as an overpayment rather than as a refund and was offset against the remaining debt owed by the debtors as individuals for the postpetition interest.In re Matunas, 2001 Bankr. LEXIS 847, 264 B.R. 365 (Bankr. D.N.J. July 12, 2001) (Lyons, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07
Confirmed plan bound creditor. Bankr. W.D. Va. The chapter 13 debtor filed an adversary proceeding seeking a declaratory judgment to determine the dischargeability of postpetition interest on a student loan. The debtor’s confirmed plan provided for payment of a portion of the principal and that no postpetition interest would accrue on the student loan during the pendency of the plan. Although the student loan creditor received the plan and notice of the confirmation hearing, it failed to object to confirmation. After the debtor completed the plan and received a discharge, the creditor attempted to collect the loan, including postpetition interest. The bankruptcy court granted summary judgment to the debtor, holding that although the debtor’s confirmed plan should not have contained language tolling postpetition interest on his student loan, the finality of confirmation made the postpetition interest tolling provision res judicata. The court ordered the creditor to recalculate the total amount owed on the loan.Banks v. Sallie Mae Servicing Corp. (In re Banks), 2001 Bankr. LEXIS 879, 261 B.R. 896 (Bankr. W.D. Va. May 1, 2001) (Anderson, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1327.02
Second mortgagee’s appeal from order that authorized sale of collateral to first mortgagee deemed moot. E.D. La. In a dispute arising out of two mortgages issued to the chapter 11 debtors for the same property, the holder of the second mortgage appealed a bankruptcy court order that approved the debtor’s credit sale of the property to the first mortgagee free and clear of all liens and mortgages, and authorized the first mortgagee’s lease of the property to the debtor. The second mortgagee argued that the bankruptcy court erred in approving the sale motion and in holding that the first mortgagee was not adequately protected by equity in certain immovable property made the subject of the court’s sale order. The first mortgagee argued that the second mortgagee’s appeal was moot because the first mortgagee and the debtor already consummated the sale and/or because the first mortgagee and a third party had already consummated a subsequent sale. The bankruptcy court agreed with the first mortgagee, and held that the second mortgagee’s appeal was moot pursuant to section 363(m). The court noted that the second mortgagee admittedly failed to post a relatively small supersedeas bond that was required as a condition for the stay of its order. The court also noted that the second mortgagee failed to demonstrate that the fist mortgagee was anything but a good faith purchaser of the collateral (citing Collier on Bankruptcy 15th Ed. Revised).In re Searex Energy Servs., 2001 U.S. Dist. LEXIS 10415, – B.R. – (E.D. La. July 16, 2001) (Clement, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.11
Fee applications were approved. Bankr. S.D. Ohio An unsecured creditor objected to the final fee applications filed by the counsel for the unsecured creditors’ committee, arguing that the fees were excessive in light of the limited assets available for distribution. The creditor contended that because the amount of professional fees exceeded the value of the estate, the work done by the professionals was, per se, not beneficial to the estate. The professionals stated that the recoveries from adversary proceedings and claims objections were less favorable than the committee initially anticipated. The bankruptcy court overruled the objection, holding that the work done by the professionals was necessary and beneficial to the estate, both at the time the work was done and when viewed with the benefit of hindsight. The court noted that all of the services performed by the professionals were carried out with the permission of the committee.In re Am-Us Co., 2001 Bankr. LEXIS 862, – B.R. – (Bankr. S.D. Ohio April 19, 2001) (Aug, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:328.03
Elements of nondischargeability were not established. Bankr. S.D. Ohio The creditor filed an adversary proceeding against the chapter 7 debtors, alleging that the debtor husband made false representations to her for the purpose of deceiving her into loaning the debtors money for their sign business. The creditor approached the debtor husband after she became aware that he was interested in expanding the business. The parties entered into a security agreement, which stated that the money was to be used to purchase or manufacture the signs and that the creditor was granted a security interest in the signs. The creditor subsequently authorized several draws on the loan for other business purposes. The debtors later transferred all of their business assets to a new business entity and granted a different lender a blanket security interest in the assets. The bankruptcy court found that the creditor failed to meet her burden of proof, holding that because the debtor husband made no misrepresentation to induce the creditor to make the loan and the creditor did not rely on any such representation, the debt was not excepted from discharge under section 523(a)(2)(A). A portion of the loan was nevertheless excepted from the debtors’ discharge as a conversion pursuant to section 523(a)(6).Yunger v. Woodby (In re Woodby), 2001 Bankr. LEXIS 868, – B.R. – (Bankr. S.D. Ohio February 7, 2001) (Aug, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Award of compensatory damages was reversed. C.D. Ill. The creditor and its representative appealed the bankruptcy court order imposing sanctions for their willful violation of the automatic stay. After the meeting of creditors, the creditor’s representative accosted the chapter 7 debtor in the courthouse’s hallway and repeatedly asked her why she was not going to pay the debt she owed. His incessant questioning reduced the debtor to tears, and she ran to the courtroom to seek the help of her attorney, who escorted her from the building because she was too badly shaken to leave on her own. The bankruptcy court found that the creditor and its representative violated the automatic stay and awarded the debtor compensatory damages, punitive damages and attorney’s fees. The district court reversed, holding that the debtor was not entitled to compensatory damages because emotional distress could not serve as a basis for the award alone. Medical or other corroborating evidence was necessary to show that the debtor suffered something more than just fleeting distress or embarrassment. The court remanded the issue of punitive damages and attorney’s fees so that the bankruptcy court could provide a detailed order stating its specific reasons for the awards.Patton v. Shade, 2001 U.S. Dist. LEXIS 10028, 263 B.R. 861 (C.D. Ill. January 22, 2001) (Mills, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.11
Equitable subordination was not a proper cause of action. N.D. Ind. The trustee appealed the bankruptcy court’s decision refusing to allow the amendment of his complaint to assert a constructive trust theory in an effort to equitably subordinate the IRS’s claim to excise taxes owed by the debtor. Pursuant to a prepetition financing agreement with the lender, all proceeds from the sale of trailers produced by the debtor were remitted to a lock box and the collections were applied to the debtor’s outstanding loan balance. The trustee claimed that the lender failed to forward any of the amounts collected to the IRS for payment of the excise tax on the retail sales. The bankruptcy court determined that an amendment to the complaint would have been futile because the trustee could not allege any set of facts upon which equitable subordination could be granted. The district court affirmed, holding that the claim of the IRS could not be equitably subordinated because the IRS had not engaged in inequitable conduct and subordination was inconsistent with the Bankruptcy Code. Although exceptions to the requirement of creditor misconduct were recognized by the court, inequitable conduct was required to subordinate the excise tax.Freeland v. IRS, 2001 U.S. Dist. LEXIS 10102, 264 B.R. 916 (N.D. Ind. July 12, 2001) (Sharp, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:510.05
Failure to comply with pretrial order warranted dismissal of the proceeding. Bankr. N.D. Ind. The debtors commenced an adversary proceeding seeking a determination that a student debt should be discharged as an undue hardship. However, believing that the matter would settle, the debtors failed to respond to discovery and failed to comply with the court’s pretrial order directing the filing of exhibit and witness lists. At the inception of trial, the lender moved that the complaint be dismissed or, in the alternative, that the debtors not be permitted to offer any evidence at trial. The bankruptcy court held that the debtors’ failure to comply with discovery procedures and with the court’s pretrial order warranted dismissal of the complaint. Dismissal was warranted because the debtors knew of the pretrial and discovery requirements, had the ability to comply, had no misunderstanding of the order, but made the decision not to comply. Sufficient fault existed to impose sanctions because the conduct was not a mere mistake or error in judgment, but, rather, was a dilatory and unreasonable failure to comply with the court’s order.McFarland v. Great Lakes Higher Educ. Guar. Corp. (In re McFarland), 2001 Bankr. LEXIS 852, 261 B.R. 922 (Bankr. N.D. Ind. May 8, 2001) (Dees, Jr., B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7037.03
Creditor’s failure to follow reclamation demand with adversary proceeding did not extinguish claim, but additional evidence was needed to determine value, if any, of reclamation right. Bankr. D. Minn. A creditor with a longtime history of supplying paper products to the debtor made a prepetition delivery of goods to the debtor. The sale was made on credit because payment was not readily available at the time of delivery. Four days later, the debtor filed its chapter 11 petition. Immediately thereafter and within ten days after the invoice and delivery date, the creditor made a written demand for reclamation. The creditor, who apparently satisfied the requirements for reclamation under state and bankruptcy law, received no response to its reclamation demand from the debtor. The creditor therefore assumed that its claim would be granted priority by the court as the only permissible alternative to reclamation and filed an unsecured priority claim to the extent of the invoice reflecting the goods delivered. The debtor objected to the creditor’s claim. The debtor argued that the creditor’s failure to file an adversary proceeding to seek reclamation constituted a fatal procedural omission. The debtor also argued that even if an adversary proceeding had been filed, the creditor’s reclamation claim would fail because another creditor (a bank) held a superior blanket security interest in all of the debtor’s inventory. The bankruptcy court held that the fact that the creditor did not follow its reclamation demand with commencement of an adversary proceeding for reclamation did not extinguish its rights under state law or under section 546(c). The court also held that the existence of the bank’s superior secured claim did not per se eliminate the creditor’s right of reclamation or reduce to zero the value of that right. The court explained that it could not determine, on the existing record, whether the creditor was entitled to reclamation and, if so, to what extent its right had value. The court set the matter for an evidentiary hearing to establish, among other things, to what extent the bank was secured, to what extent, if any, the bank had been or would be satisfied from proceeds of the goods sold to the debtor, and whether the goods were sold in the ordinary course, disposed of otherwise, or not disposed of at all.In re Hartz Foods, Inc., 2001 Bankr. LEXIS 827, 264 B.R. 33 (Bankr. D. Minn. June 26, 2001) (O’Brien, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:546.04
Creditors’ knowing retention of debtors’ property violated automatic stay. Bankr. D. Idaho Debtors alleged that creditors’ actions in filing to take steps to return property seized by the county sheriff immediately upon receiving notice of the debtors’ bankruptcy amounted to a willful violation of the automatic stay. The bankruptcy court agreed, and found that the unnecessary delay in the return of the debtors’ property was a willful violation of the automatic stay for which the debtors could recover their actual damages, including attorney fees and costs. The court held that although the creditors’ levy upon the debtors’ property occurred prepetition and was not in violation of the automatic stay, their knowing retention of property of the estate constituted a violation of section 362(a)(3). The court noted that even after they received notice of the debtors’ bankruptcy, the creditors continued to maintain that turnover was not required. Thus, the debtors were forced to come into court to seek a remedy, and only thereafter did the creditors concede that turnover was appropriate. The court refused to allow the creditors to hide behind the sheriff when the sheriff was merely following their directions with respect to the return of the property.In re Johnson, 2001 Bankr. LEXIS 880, 262 B.R. 831 (Bankr. D. Idaho June 5, 2001) (Pappas, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03
Motion for summary judgment denied where creditor failed to establish debtor’s knowingly false representation of material fact and reliance. Bankr. D. Idaho A creditor moved for summary judgment on her adversary complaint, seeking a determination that a debt owed to her by the chapter 7 debtor was nondischargeable under section 523(a)(2)(A). In her supporting affidavit, the creditor testified that she paid the debtor a total of $17,500 and that the debtor promised to invest the funds on her behalf. She also stated that only a portion of the money was repaid and that, in relation to the funds, the debtor was tried and convicted on two counts of grand theft by deception under state law (Idaho Code §§ 18-2403(2)(a), 18-2407(1)(B)). In his affidavit in opposition to the creditor’s motion, the debtor generally denied any intent to deceive the creditor and alleged that the debt to her arose from failed investment strategies. The bankruptcy court denied the creditor’s summary judgment motion. The court held that the creditor was not entitled to summary judgment on her section 523(a)(2)(A) claim because she failed to establish a knowingly false representation of material fact upon which the debtor intended her to rely, and upon which she justifiably relied to her injury. The court further noted that the Idaho theft by deception statute did not set forth all five of the required elements of section 523(a)(2)(A) and that the creditor failed to present a record showing that these elements were otherwise established at trial.Massie v. Pate (In re Pate), 2001 Bankr. LEXIS 881, 262 B.R. 825 (Bankr. D. Idaho May 17, 2001) (Myers, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:523.08
Venue transfer of tort litigation was not warranted. Bankr. C.D. Cal. California residents, harmed by a silica gel placed in their homes, sued numerous entities, including the chapter 11 debtor and many of its affiliates. The debtor, whose chapter 11 case was pending in the district of Delaware, removed the action to the bankruptcy court and requested a transfer of venue to Delaware. Upon the tort victims’ motion for abstention or remand to the state court, the bankruptcy court held that transfer of venue was not warranted because virtually all of the relevant factors weighed in favor of trial in the original forum. Transfer of venue would strain the resources of the Delaware bankruptcy court, increase administrative expenses of the bankruptcy estate, and require the parties to retain and educate additional counsel, as well as transport lawyers and witnesses to Delaware for court appearances when and all of the witnesses and records were located in California.Tig Ins. Co. v. Smolker, (In re Tig Ins. Co.) 2001 Bankr. LEXIS 851, 264 B.R. 661 (Bankr. C.D. Cal. July 13, 2001) (Bluebond, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:4.01
B.A.P. affirmed reopening of debtor’s case; neither laches nor equitable estoppel barred reopening. B.A.P. 10th Cir. A creditor appealed a bankruptcy court order that permitted a debtor to reopen his chapter 7 case and amend his schedules to include the creditor’s legal malpractice claim. The Tenth Circuit B.A.P. affirmed. The court held that the bankruptcy court did not err when it permitted the reopening of the debtor’s case under section 350(b), neither laches nor equitable estoppel barred the reopening of the debtor’s case, and the debtor’s failure to include the creditor on his schedules did not cause the creditor economic harm. The B.A.P. expressed agreement with the majority of courts, which have held that a debtor’s intent in failing to schedule a claim is not relevant to a court’s decision of whether to reopen a case under section 350(b) in a no-asset chapter 7 case when no claims bar date has been set. The court also rejected the creditor’s argument that the claim arose postpetition, and determined that pursuant to the plain language of the Bankruptcy Code and its underlying policies, the creditor’s claim arose at the time the debtor committed the conduct upon which the claim was based. Finally, the court found that the creditor failed to meet her burden of proving, by a preponderance of the evidence, that her claim was nondischargeable under section 523(a).Watson v. Parker (In re Parker), 2001 Bankr. LEXIS 826, 264 B.R. 685 (B.A.P. 10th Cir. July 13, 2001) (McFeeley, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:350.03
Actions were not excepted from stay. Bankr. M.D. Fla. The chapter 13 debtor filed a motion to enforce the automatic stay and permit her to make regular payments to creditors. The debtor was a defendant in a prepetition consumer fraud action filed by the Federal Trade Commission. The district court had entered a temporary injunction enjoining the debtor from disposing or transferring any property, which effectively precluded the debtor from spending any income she received. The debtor sought a declaration that the automatic stay precluded the FTC from enforcing the preliminary injunction to prevent her from spending her postpetition income to pay her family living expenses and plan payments. The bankruptcy court granted the debtor’s motion, in part, holding that any actions taken by the FTC to enforce the preliminary injunction so as to prohibit the debtor from using her postpetition, non-injunction related income to pay family living expenses and to make her plan payments were prohibited by the automatic stay and were not excepted from it. The court found that enjoining the debtor’s use of her postpetition income would not further the administration of the estate and would make it impossible for the debtor to confirm a plan. The automatic stay did not, however, preclude the FTC from prosecuting its action against the debtor, from enforcing the conduct prohibition provisions of the injunction or from enforcing the injunction to the extent that it prohibited the debtor’s dissipation of assets that were related to the alleged fraud (citing Collier on Bankruptcy, 15th Ed. Revised) .In re Dolen, 2001 Bankr. LEXIS 872, 265 B.R. 471 (Bankr. M.D. Fla. July 17, 2001) (Corcoran, III, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.05
District of Columbia’s sales tax lien had priority over lien held by IRS. Bankr. D.C. The District of Columbia and the IRS disputed which entity’s tax lien took priority with respect to funds held by the debtor for distribution. The District of Columbia claimed priority for its sales tax liens based upon a particular statute (D.C. Code Ann. § 47-2012). The IRS relied upon the federal doctrine of choateness, which generally controls priority between competing tax liens and that incorporates as an element the general lien law rule of 'first in time, first in right.' The bankruptcy court ruled in favor of the District of Columbia and held that the applicable District of Columbia statute (D.C. Code Ann. § 47-2012) trumped the choateness doctrine. The court concluded that Congress did not intend for federal tax liens to have priority over later-arising District of Columbia sales tax liens despite D.C. Code Ann. § 47-2012 based on the choateness doctrine and its incorporation of the general rule of 'first in time, first in right.'WPG, Inc. v. IRS (In re WPG, Inc.), 2001 Bankr. LEXIS 882, – B.R. – (Bankr. D.C. July 12, 2001) (Teel, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.01
Federal claims court lacked jurisdiction. Fed. Cir. Various debtors and creditors appealed an order of the federal claims court dismissing their complaint against the United States for lack of subject matter jurisdiction. The claims court determined that it did not have jurisdiction to consider their allegations that the actions approved by the bankruptcy courts resulted in takings in violation of the Fifth Amendment. The debtors and creditors claimed that the trustees improperly diminished their estates or awarded them too little from the estates. The takings claims were based upon the bankruptcy courts’ approval of the actions of the trustees. The Court of Appeals for the Federal Circuit affirmed, holding that the court of federal claims did not have subject matter jurisdiction to review the decisions of the bankruptcy courts. In order for the claims court to entertain the takings claims, it would have had to scrutinize the actions of the bankruptcy trustees and courts, matters more properly suited for the appellate courts.Allustiarte v. United States, 2001 U.S. App. LEXIS 15809, 256 F.3d 1349 (Fed. Cir. July 16, 2001) (Schall, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.02